Correlation Between Absa and Nedbank

Can any of the company-specific risk be diversified away by investing in both Absa and Nedbank at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Absa and Nedbank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Absa Group and Nedbank Group, you can compare the effects of market volatilities on Absa and Nedbank and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Absa with a short position of Nedbank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absa and Nedbank.

Diversification Opportunities for Absa and Nedbank

-0.11

Correlation Coefficient

Absa  Nedbank

Good diversification

The 3 months correlation between Absa and Nedbank is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group and Nedbank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nedbank Group and Absa is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Absa Group are associated (or correlated) with Nedbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nedbank Group has no effect on the direction of Absa i.e., Absa and Nedbank go up and down completely randomly.

Pair Corralation between Absa and Nedbank

Assuming the 90 days trading horizon Absa is expected to generate 2.31 times less return on investment than Nedbank. In addition to that, Absa is 1.13 times more volatile than Nedbank Group. It trades about 0.03 of its total potential returns per unit of risk. Nedbank Group is currently generating about 0.07 per unit of volatility. If you would invest  1,823,862  in Nedbank Group on September 26, 2024 and sell it today you would earn a total of  1,005,038  from holding Nedbank Group or generate 55.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Absa Group  vs.  Nedbank Group

Absa Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nedbank Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nedbank Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Absa and Nedbank

The main advantage of trading using opposite Absa and Nedbank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa position performs unexpectedly, Nedbank can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Nedbank will offset losses from the drop in Nedbank's long position.

The idea behind Absa Group and Nedbank Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.